UPDATE 2-Fed's Fisher: tapering Fed's bond buys could help housing

By Ann Saphir

March 7 Slowing the Federal Reserve's current
pace of monthly asset purchases could paradoxically help the
U.S. housing market, a top Fed official said on Thursday.

"The housing market is getting to be quite strong. It's
quite possible, in my view - and this is my personal opinion -
that a little tapering there would actually make people realize
that we've bottomed out on the interest rate cycle," Dallas Fed
President Richard Fisher told Fox Business Network in a TV
interview. "I think you'd actually see more activity than you
are currently seeing."

Fisher in the past has said that the Fed's super-easy
monetary policy may actually deter borrowing because consumers
can continue to count on low borrowing costs far into the
future. By cutting back on bond purchases, the reasoning goes,
the Fed could touch off a rush of economy-boosting borrowing as
consumers try to lock in low mortgage rates.

The Fed has been buying $40 billion in mortgage-backed
securities and $45 billion in Treasuries each month to push down
longer-term borrowing costs and encourage businesses to boost
hiring.

That's on top of vowing to keep short-term interest rates at
rock bottom until the unemployment rate falls to at least 6.5
percent, as long as inflation stays under control. Unemployment
is currently at 7.9 percent.

Fed Chairman Ben Bernanke and several other influential
members of the Fed's policy-setting committee have argued that
the benefits of the bond-buying program clearly outweigh
possible costs.

But Fisher, who does not vote on the Fed's policy-settting
panel this year, has been among the minority who has emphasized
the risks of continuing to add to the Fed's balance sheet, now
at a record $3.091 trillion.

"The issue to me is, how do we get out of this huge
expansion of our balance sheet, and what will be the risks that
we run in doing so as interest rates come up and the economy
improves," he said Thursday.

The Fed's latest round of bond buying has deliberately
fueled the U.S. stock market, he said, in hopes of delivering a
"wealth effect" that would get consumers spending again.

The Dow Jones Industrial Average closed at a record high for
a third straight day on Thursday, and though the trend might yet
"end in tears...things are moving in the right direction," he
said.

But even as he credited the Fed's bond-buying program with
helping pull the housing market out of its post-recession slump,
Fisher called for ratcheting it back and letting "natural"
forces take hold.

"I'm not talking about cutting off the purchases, just
tapering it down so we have less accommodation than we have
now," he said.

Dec 9 A former Cantor Fitzgerald trader has been
indicted on charges that he defrauded investors by lying about
the price of mortgage bond transactions he handled for them
after the financial crisis, U.S. prosecutors said on Friday.

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